Allied Irish in $750m fraud probe

Wednesday 6 February 2002 00:00 BST

A SUSPECTED $750m (£549m) fraud has been uncovered by management at Allied Irish Banks' US subsidiary Allfirst. Ireland's largest bank said the investigation centred on a foreign exchange trader in the treasury department of Baltimore-based Allfirst. The trader is believed to have gone missing.

The bank has discontinued all foreign exchange trading operations in Allfirst with the exception of customer service obligations and the FBI is helping it with its probe.

The executive vice-president/treasurer of Allfirst, the senior vice-president with responsibility for Treasury Funds Management, the senior vice-president with responsibility for Investment Operations and two other staff members have been suspended pending completion of the investigation.

Allied Irish said the case would lead to a one-off reduction in group 2001 earnings of e596m ($520m) after tax. Before this charge, pre-tax earnings would total e1.4bn.

Chief executive Michael Buckley said in Dublin today: 'It's a very heavy blow to the bank. We will be writing off the money in our 2001 accounts.

'An investigation identified one trader as being at the centre of this and last weekend, as the net was closing in on the trader, he went missing and did not turn up to work on Monday morning.

'We called in the FBI and sent a special investigation team out from Dublin to take responsibility on a day-to-day basis for Allfirst.

'We have suspended a number of people in direct line above the trader involved, but that does not mean we suspect any complicity on their part. But it is good practice in this situation.'

Mr Buckley insisted it did not resemble the Nick Leeson affair. 'What Nick Leeson did was cause terminal damage to Barings. But an important point I want to make is that even when we write off that $750m, we will be making a profit after tax for 2001.

'This is a heavy blow to the bank, but it is by no means fatal and business will continue as usual as far as customers and staff are concerned.'

AIB said it had sent experienced senior AIB Treasury personnel to Baltimore and they have now taken over day-to-day responsibility for Allfirst Treasury.